Business Situation:  In a slow growth economy, there are limited funds for merit increases and bonuses.  To the extent there are funds are available, organizations want to use those funds to encourage engagement and retention of high performers (and those with high potential).

Practice: “Bottom Up” Calibration – Today many organizations use “top down” calibration to make sure that performance ratings fit a specific distribution.  The idea is to promote fairness and to limit “grade inflation”.  Because performance is frequently linked to pay (especially variable pay), the intent also is to make sure that there is a differential in rewards for high performers versus low performers.  However, frequently the people making the final calibration decisions may be somewhat removed from actually observing each individual’s performance.  In addition, the exercise can be de-motivating to strong contributors who, because of the desired distribution, just miss out from the next higher ratings category.  All of these issues (and more) bring questions about the fairness of the exercise to employees.

“Bottom up” calibration approaches the issue differently.  The main premise is that co-workers (or people working on the same team) know who the best performers are, so why not ask them for their opinion?  Let them vote on the top performers and use voting distribution as the ratings distribution.  There are opportunities for abuse if groups of employees try to game the system, however, managers can do a “sanity check” (and make sure there are consequences for collusion).  By gaining the input of the employees in the ratings process, it helps overcome many of the fairness concerns.  In addition, the feedback can be more meaningful to employees because it is recognition by peers.

Example

There are good examples in sports of bottom up calibration.  For example, voting for the Pro Bowl in the National Football League (NFL).  Players around the league at the end of the season vote for which players they think were the best at their position during the season.  The players with the highest votes from each conference are named the starters for the Pro Bowl game.  Though not everyone who is voted as a starter plays for various reasons, it is an honor for the players selected.  In addition, it impacts the compensation for players (many contracts have clauses that pays them a bonus for being selected to the Pro Bowl).

Do you use calibration in your organization?  Have you looked at doing “bottom up” calibration?  If you have, what results have you achieved?

I also had the opportunity to attend a Social Recruiting workshop in the afternoon put on by Thomas Boyle from SilkRoad and Rob Humphrey from LinkedIn.  It was a good introduction for attendees to Facebook, Twitter, and LinkedIn.  Most of the attendees had some level of experience with social networks and were very interested in best practices in leverage those tools to improve recruiting effectiveness.  Unfortunately, I was not able to attend the entire workshop so I was not able to see how things turned out, but clearly, based on the attendance, there was a lot of interest in this topic.

As with most user conferences, a lot of the value was in the networking and you could see customers starting to connect with each other at meals and breaks and sharing experiences.  That is really what these events are all about.

I was not able to attend the whole conference so if you did attend and have more to add on your experience, please feel free to comment on this post and add to this report.

Hiring/Onboarding – Performance review scores can provide insight into who was a good hire or not.  Without them, some feedback would still be required to understand if a new hire was a good hire.

Learning/Development – Performance reviews can be useful for identifying developmental opportunities, but a rating is (or subsequent calibration of ratings are) not required to do this.

Career Path/Planning – Reviews can be useful to discuss next steps in careers and what career path/plan makes sense.  However, again, a rating is not required to do this.

Succession Planning – Performance reviews by their nature designate top performers.  This is useful for determining who is a candidate to be in a succession pool.  However, a talent review and/or nomination process does not need to include a formal performance rating that is shared with the employee (this point is arguable because some insist that successors know that they are successors).

Compensation – This is the primary area where a performance rating is used.  Performance ratings enable equitable distribution of scarce compensation funds.  At least, that is the theory.  However, if the performance reviews are not perceived as fair, it makes the rewards either also seem unfair (if the guidelines are strictly enforced) or it makes the review process look like a sham (people get paid at rates that are higher or lower than the performance rating warrants).  So, it is unclear if tying pay to performance really achieves the objective of fairness and differentiating rewards between high and low performers, especially when forced rankings (for more on this see “Thinking of Forced Ranking Your Employees? Tread Carefully”, Gartner subscription required) are involved. 

So, where does that leave us?  There is still a need for performance feedback.  Individuals need get benefit from feedback for development (though it does not need to be differentiated – high performers vs. low performers).  It is also needed for other processes (hiring effectiveness, succession pool creation, etc.).  This feedback does need to be differentiated.  So, we could call it something different, but the net result would be the same. 

The answer, to me, is not to get rid of the performance review.  It is to do a better job of appraising performance and communicating with employees.  What might you do?

Get rid of forced ranking, but keep calibration – It is possible to have performance not fall in a normal distribution without grade inflation.  If you only hire top performers, you should expect to have a higher percentage of top performers.  Calibration keeps you honest.  It forces managers to have a good justification for a rating and ensures consistent grading (to prevent grade inflation).

Make sure that total compensation aligns with performance, value delivered, and the market – If you have more high performers, there will be less differentiation in compensation because there are finite pools to allocate for merit increases and variable pay.  That is ok because it at least is fair.  The key is to make sure you understand market pay (it may not be just the market rate for a specific job, but also other jobs that have similar qualifications) and reward appropriately.  There is a lot of data freely available to individuals about market pay rates that was not available even a few years ago.

Find other ways to recognize the highest performance other than just compensation – This can happen in a myriad of ways, but would include promotions, development opportunities, additional job responsibilities, etc.

Keep an ongoing performance dialogue going – If you are discussing performance just once or twice a year, then you likely do not have a very effective performance management process.  Frequent communication, expectation setting, and support are crucial to keeping employee engagement high.

The bottom line is that I do not think performance reviews will go away because the feedback loop is critical to talent management success.  What needs to improve is the performance conversation.  Technology can help in some respects, but managers and executives need to step up their game.

• MyTaleo (a portal-style user interface with personalization capabilities)
• Talent Scorecard (drag and drop dashboard widgets)
• Modal Usage (navigate in multiple ways through a particular screen — includes Table of Contents to navigate a requisition and Quick Filters to more easily narrow a long list of candidates)
• At-a-Glance Summaries (extends the Taleo Talent Card metaphor to recruiting)
• Outlook Integration (Taleo Inbox is extended to support Recruiters’ ability to capture candidates)

In Performance Management, Taleo has been quietly adding new functionality (for example, a “n-box” capability will be out shortly for succession management) as well as adding customers (they have licensed Taleo Performance to 12 customers).  In addition, it announced Taleo Business Edition (BE) Performance (available in November 2008) which is targeted at the SMB market (below 3,000 employees) and integrated with the existing Taleo BE Recruiting solution.

Another major announcement was Taleo’s equity investment in (with an exclusive option to buy) Worldwide Compensation (WWC).  WWC is a relatively new entrant to the compensation management software space, but started by building a global library of compensation and benefit regulations and practices (which WorldAtWork makes available to its members).  Once it had learned more about the requirements for global compensation, it built a software solution.

The vision also includes development planning.  Taleo does not plan to offer its own LMS, but plans to integrate with existing LMS.  What it wants to do is provide value around the LMS by offering solutions that focus more informal and experiential learning.

Thomas (via web conference) and I spent a lot of time with Taleo today going through Taleo Performance and WWC for the Magic Quadrant for Employee Performance Management (EPM) Software research.  I am not going to comment on our findings at this point (Gartner clients should feel free to set up an inquiry if interested) because we still have a lot of work to do including getting feedback from some of the early customers.

Speaking of early customers for Taleo Performance, Taleo had a panel of early adopters talk about their experience implementing the EPM solution as part of a broader talent management strategy.  The group, TeleTech (David Gilbert), Children’s Healthcare of Atlanta (Larry Mohl), and Freeport-McMoRan (Kyle Peavler), discussed the drivers for change in their organizations, the challenges they overcame, and the benefits they achieved.  It was interesting to hear them talk about the importance of usability in their decision to choose Taleo and how it was key for getting buy-in from various stakeholders.

How important should usability be as a selection criterion?  I have found the usability is a little bit like beauty.  It is in the eye of the beholder.  It depends quite a bit on what you are used to and what you want to accomplish.  It is different from organization to organization and from stakeholder group to stakeholder group (what HR and IT think is easy to use may not be the same for employees and managers for example).  What do you think?  Is usability overrated or underrated?

“We do succession planning to an unbelievable degree.  But once we do it, we don’t use it.  Never have we received a senior vacancy and looked at the succession plan.  It’s almost done as just another tick in the HR box”

One reason that succession plans do not work, at least for executive jobs, is that the events that trigger them –usually dismissal– signal that the organization wants to move in a different direction with the next hire:  “We do not want someone like the last guy.”  And succession planning is designed to produce candidates who look more or less exactly like that last guy…

Does that ring true for your organization?  I imagine that it would for most HR professionals.  Succession plans that are tied to individual characteristics or that do not change as the organization direction changes are not particularly valuable.  Like much of talent management, the use of succession management software is only as good what goes into it.  If you do not define the right characteristics for key positions (and adjust them regularly as the organization evolves) or do not develop broader talent pools that can be slotted into multiple critical roles, then a lot of time and effort can be spent on succession management with little results to show for it.

What do you think?  Is succession management worth the effort?  Is it better to not plan and fill needs as they emerge with a talent pool made of internal and external candidates?

We have seen a maturing of products as vendors continue to add functional depth to their EPM solutions.  We have also seen an increased focus on usability.  Not surprisingly, we have also seen many touting new social networking capabilities. 

At the same time we have been doing these briefings, I have been getting the usual steady stream of client inquiries.  I looked at the list of clients this month and it struck me that there were at least three of the very large variety (greater than 65,000 employees) plus another of that size tomorrow.  All four of them wanted to discuss integrated talent management.  All of them have some solutions in place in some talent management areas already but want to know more about the market for the broader suite. 

In “Unlocking the Strategic Value of Talent Management Application Investments” (Gartner subscription required), we discuss the adoption patterns of customers.  In terms of buying behavior, the research conclusions still hold true.  However, just because the really large companies have not bought talent management application suites does not mean that they would not like to do so.  Now, the vendors just need to be able to deliver the depth and breadth required by these customers.  What do you think?  Are vendors ahead of customer demand or do customers want more than the vendors can deliver?

I am working on some other notes that will get finished when I get back from vacation.  I am in the process of completing our first Hype Cycle for HCM Applications.  In addition, I am finishing up a note that provides our definition of Workforce Analytics.  Also, I hope to have some good news to report to you about the future of this blog when I get back from vacation.

Hellman & Friedman Acquisition of Kronos Will Fund Further Growth

This is the first major purchase by a private equity firm in the human capital management arena. Kronos will gain access to more resources to support its global expansion and movement into talent management applications.

Cool Vendors in Finance and HCM, 2007

Though many view financial and HCM solutions as mature and stable markets, the reality is that significant innovation is happening.

Plateau Bolsters Talent Management Suite With Nuvosoft Buy

Plateau’s acquisition of Nuvosoft helps round out Plateau’s talent management suite. Nuvosoft has strong functionality, but a limited customer base.

Key Issues for Finance, Human Capital Management and Procurement, 2007

Financial management, human capital management and procurement applications form the administrative “backbone” for all organizations. These Key Issues for 2007 summarize Gartner’s research in these areas.

Also, if you are a Gartner for IT Leaders client, check out the new ERP/SCM specialty page off of the Application Management Home Page.  There is an Analyst Corner section that I post blog entries to on occasion.

Coming Soon

“MarketScope for Employee Performance Management Software”

“Defining Workforce Analytics”